India’s Unicorn Startups Raising Funds With Lower Valuation

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Snapdeal owner Jasper Infotech is inching closer to securing a lifeline from Japan’s SoftBank Corp, its largest shareholder, but the transaction could drag its valuation to under $3 billion.

#DigitalErra Thought Corner

SoftBank is negotiating to invest $100-150 million in Jasper in tranches, according to three people familiar with developments. A fourth person said overall investment could be as high as $300 million in Jasper, which is grappling with slowing sales and has been forced to cut jobs.

Jasper and SoftBank have been going back and forth the last two months on crucial terms of the deal, including on the investment size and the valuation, these people said, declining to be identified. Jasper’s board has held talks with SoftBank for raising funds at a valuation of $1.5-2.5 billion, they said.

Unicorn Startups Facing Valuation Markdown

Just like Snapdeal, India’s taxi aggregator service, Ola too saw a 40% markdown in its valuation by US investment firm Vanguard Group. The markdown indicates an overall valuation of close to $3.5 billion. It had hit a peak of $5 billion when the company raised USD 500 million in November 2015.

Last month, Ola got a new lease of life when it raised $350 million from existing and new investors that include Softbank, Tiger Global, Sequoia Capital and Matrix Partners.

Similarly, homegrown e-commerce major Flipkartis in the final stages of raising its latest round of funding in the range of $800 million to $1 billion from both existing and new set of investors but this is likely to come at a lower valuation of $7-8 billion.The e-tailer had last raised funds in July, 2015, to the tune of $700 million at a valuation of $15.2 billion but since then the situation has witnessed a dramatic change for both the company and industry.

Markdown- A Reason To Re-Evaluate Business

An entrepreneur can consider markdowns as pointers to fundamental problems in the business that needs to be solved. It would push to become more realistic, pragmatic and action oriented. Markdowns should be seen with similar sentiments in Indian ecosystem.

We started growing our business much before the right economic model and market fit was figured out. We also started diversifying and starting new projects while we still hadn’t perfected the first or made it profitable. We started building our team and capabilities for a much larger size of business than what was required with the present scale,”KunalBahlof Snapdeal wrote in an email to his employees.

Markdown stories should push entrepreneurs to appreciate the value of creating sustainable businesses.  Rather than running after raising truckload of money, entrepreneurs should resolve to become a viable business with few rounds of funds. So, markdown can essentially be seen in a positive way by entrepreneurs.

Latest talks of funding are also a good sign for e-commerce industry where Snapdeal and Flipkart would have required these much needed funds to stave off fierce competition from rivals like Amazon and the latest entrant Alibaba. Amazon has already committed $5 billion of investment in the Indian market.

“Regardless of valuation, the fact that money is available is a good sign,” said Harish HV, partner, India Leadership team, Grant Thornton India. “It means investors, whether new or existing, haven’t yet given up on the company and that there is meat left. It’s a sign of bullishness.”

The founders do not decide valuation as they are not the majority shareholders. It is usually decided by the board. With the entry of Alibaba, India’s e-commerce ecosystem will bring the best out of its major stakeholders amidst tighter budgets and lowered valuations.

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